Suppose a person cashes his payroll cheque and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

Question

Quizplus · Accepted Answer

When a person cashes a payroll cheque and holds the funds as currency, the reserves in the banking system decrease because the bank loses reserves to provide the cash. However, the monetary base remains unchanged because it includes both currency in circulation and reserves, and the total amount of these does not change.

Suppose a Person Cashes His Payroll Cheque and Holds All